Joint EPA/State Agreement To Pursue Regulatory Innovation

ENVIRONMENTAL PROTECTION AGENCY

Joint EPA/State Agreement To Pursue Regulatory Innovation

[FRL-6008-7]

AGENCY: Environmental Protection Agency.

ACTION: Notice of Availability of Joint EPA/State Innovation Agreement.

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SUMMARY: The U.S. Environmental Protection Agency (EPA) and senior

State environmental officials recently signed an agreement entitled

Joint EPA/State Agreement to Pursue Regulatory Innovation (hereafter

``Innovations Agreement''). The purpose of the Innovations Agreement is

to improve environmental protection in the United States, improve EPA/

State environmental management practices, and provide timely decision-

making on good ideas. These goals will be achieved through innovation

proposals by States, with the intent that many successful innovations

will lead to system-wide improvements in environmental protection.

The Innovations Agreement embodies a set of general principles and

a process for EPA/State innovation activities that includes:

--Statements of purpose and scope of the agreement;

--Over-arching principles that will govern joint EPA/State regulatory

innovation activities;

--The process EPA and the States will use to identify good ideas,

including both the continuation of existing State/EPA interactions to

start innovation projects, and the establishment of a new mechanism for

making decisions on innovative proposals that do not fit into ongoing

reinvention programs; and

--Guidelines for how EPA and the States will evaluate the success of

innovation activities carried out under this agreement.

This Innovations Agreement builds on the many reinvention efforts

that are underway in the States and EPA. It is intended to ensure joint

decision-making, timely review, broad public involvement, and continued

progress in fostering and implementing ideas that are good for our

environment and the people we serve.

ADDRESSES: An electronic version of the Innovations Agreement is

available on EPA's Office of Reinvention internet home page at http://

www.epa.gov/reinvent. Interested parties can obtain a single copy of

the report by contacting Louise McLaurin (phone 202-260-4261 or e-mail

[email protected]).

FOR FURTHER INFORMATION CONTACT: For questions on the joint EPA/State

Innovations Agreement, please contact John Glenn, U.S. Environmental

Protection Agency, Office of Reinvention, (1803), 401 M Street, S.W.,

Washington, DC, 20460, phone 202-260-5029, e-mail

[email protected]; or Bruce Brott, Minnesota Pollution Control

Agency, phone 612-297-8380, e-mail [email protected].

SUPPLEMENTARY INFORMATION: To find new, better, and more efficient and

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effective ways to improve environmental protection, the Environmental

Council of the States (ECOS) and EPA Administrator Carol Browner formed

a Task Group to develop a joint agreement on EPA/State regulatory

innovation. The Task Group developed the draft Joint EPA/State

Agreement to Pursue Regulatory Innovation (``Innovations Agreement''),

which was published for public comment last fall in the Federal

Register (62 FR 56182-89; October 29, 1997). A balanced set of eleven

comments with 31 signatories representing industry, environmental

interest groups, and government were submitted. All comments were

considered in preparing the final draft of the Innovations Agreement.

At the ECOS meeting on March 25, 1998, the State officials present

voted unanimously to approve the Innovations Agreement. In late April,

EPA and senior State environmental officials signed the joint

Agreement. The full text of the Innovations Agreement and the EPA/State

Response to Comments follow.

Part 1

Joint EPA/State Agreement To Pursue Regulatory Innovation

``* * * We must encourage innovation by providing flexibility

with an industry-by-industry, place-by-place approach to achieving

standards, * * *. But we will require accountability that such

standards be met. Rather than focusing on pollutant-by-pollutant

approaches, attention must shift to integrated strategies for whole

facilities, whole economic sectors, and whole communities.''

[Excerpt from President Clinton's ``Reinventing Environmental

Regulation,'' March 16, 1995]

The U.S. Environmental Protection Agency and senior State

environmental officials (hereafter referred to as ``States'') agree on

the need to experiment with new approaches to improve our nation's

environment. These new approaches can help us identify cleaner,

cheaper, smarter ways to ensure that all Americans enjoy a clean

environment and healthy ecosystems. Through this joint commitment, EPA

and the States agree to encourage, evaluate, implement, and disseminate

ideas that seek better ways of achieving our environmental goals. This

agreement presumes that EPA and the States will find ways to help good

ideas succeed, and that joint EPA and State efforts to promote and test

new ideas will result in the maximum benefit to the American people and

their environment.

Two years ago, EPA and the States entered into an historic

agreement to establish the National Environmental Performance

Partnership System (NEPPS). That agreement recognized that we have

achieved significant progress since environmental protection programs

were created more than 25 years ago. Yet to meet today's new

challenges, we agreed that States and EPA must manage for environmental

results, increase public involvement, and use environmental indicators

to track our progress. We agreed that States and EPA must become true

partners in implementing federal programs, and that different State

programs need different levels of federal involvement.

This new partnership creates an environment in which State and

local regulatory innovations can, and should, flourish. As the primary,

front-line delivery agent for environmental programs, States are a

natural laboratory for testing new ideas. State and local environmental

professionals are closest to environmental problems and communities,

and can often develop the most practical solutions. These professionals

should be encouraged to seek innovative solutions that may not fit

within the traditional approaches. We agree that our efforts to promote

innovation must, in the end, be directed toward achieving our public

health and environmental goals in a more efficient or effective way.

EPA also seeks to promote regulatory innovations at all levels.

This agreement complements, but does not supplant, other national or

State efforts to develop regulatory innovations. Its purposes are to:

improve environmental protection in the United States; to improve EPA/

State environmental management practices; and to provide timely

decision-making on good ideas.

States and EPA agree that the following principles should guide us

as we develop, test and implement regulatory innovations:

Experimentation: Innovation involves change, new ideas,

experimentation and some risk of failure. Experiments that will help us

achieve environmental goals in better ways are worth pursuing when

success is clearly defined, costs are reasonable, and environmental and

public health protections are maintained.

Environmental Performance: Innovations must seek more efficient

and/or effective ways to achieve our environmental and programmatic

goals, with the objective of achieving a cleaner, healthier environment

and promoting sustainable ecosystems.

Smarter Approaches: To reinvent environmental regulation,

regulators should seek creative ways to remedy environmental problems

and improve the environmental protection system, and be receptive to

innovative, common sense approaches.

Stakeholder Involvement: Effective stakeholder involvement produces

better innovation projects and catalyzes public support for new

approaches. Stakeholders must have an opportunity for meaningful

involvement in the design and evaluation of innovations. Stakeholders

may include other State/local government agencies, the regulated

community, citizen organizations, environmental groups, and individual

members of the public. Stakeholder involvement should be appropriate to

the type and complexity of the innovation proposal.

Measuring and Verifying Results: Innovations must be based on

agreed-upon goals and objectives with results that can be reliably

measured in order to enable regulators and stakeholders to monitor

progress, analyze results, and respond appropriately.

Accountability/Enforcement: For innovations that can be implemented

within the current regulatory framework, current systems of

accountability and mechanisms of enforcement remain in place. For

innovations that involve some degree of regulatory flexibility,

innovators must be accountable to the public, both for alternative

regulatory requirements that replace existing regulations and for

meeting commitments that go beyond compliance with current

requirements. Regulators will reserve full authority to enforce

alternative regulatory requirements to ensure that public health and

environmental protections are maintained, and must be willing to

explore new approaches to establish accountability for beyond-

compliance commitments.

State-EPA Partnership: The States and EPA will promote innovations

at all levels to increase the efficiency and effectiveness of

environmental programs. We must work together in the design, testing,

evaluation and implementation of innovative ideas and programs,

utilizing each other's strengths to full advantage.

EPA agrees to establish a process that ensures timely review and

decision-making on State innovation proposals based on implementation

of the above seven principles. The States agree to consult early with

EPA, to develop proposals consistent with the above principles, and to

involve stakeholders. EPA and the States agree on the need for a

clearinghouse of regulatory innovations so that promising ideas can be

shared across state lines and within EPA.

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We agree that the principles and process described in this

agreement should be open to continual improvement. As part of ongoing

review and evaluation, EPA and the States agree to evaluate the need to

further institutionalize the broad principles and process to help

future innovations succeed.

Through this agreement, as detailed in Part 2, States and EPA are

committed to work together and with all stakeholders to apply the

lessons learned from successful innovations in creating the best

possible system to achieve greater environmental protection at a

reasonable cost.

We agree to encourage innovation that will prepare us for meeting

our environmental challenges well into the 21st century.

Carol M. Browner,

Administrator, U.S. Environmental Protection Agency.

Robert C. Shinn, Jr.,

Commissioner, New Jersey Department of Environmental Protection,

President of ECOS.

Fred Hansen,

Deputy Administrator, U.S. Environmental Protection Agency.

Robert W. Varney,

Commissioner, New Hampshire Department of Environmental Services, Vice

President of ECOS.

J. Charles Fox,

Associate Administrator for Reinvention, U.S. Environmental Protection

Agency.

Peder Larson,

Commissioner, Minnesota Pollution Control Agency, and Co-Chair, ECOS

Regulatory Innovations Task Group.

Randall Mathis,

Commissioner, Arkansas Department of Pollution Control and Ecology, and

Co-Chair, ECOS Regulatory Innovations Task Group.

Dated: April 1998.

Part 2

I. Overview of This Agreement

This agreement embodies a set of general principles and a process

for EPA/State innovation activities. This agreement includes:

--Statements of purpose and scope of the agreement;

--Over-arching principles that will govern joint EPA/State regulatory

innovation activities;

--The process EPA and the States will use to identify good ideas,

including both the continuation of existing State/EPA interactions to

start innovation projects, and the establishment of a new mechanism for

making decisions on innovative proposals that do not fit into ongoing

reinvention programs; and

--Guidelines for how EPA and the States will evaluate the success of

innovation activities carried out under this agreement.

This agreement builds on the many reinvention efforts that are

underway in the States and EPA. It is intended to ensure joint

decision-making, timely review, broad public involvement, and continued

progress in fostering and implementing ideas that are good for our

environment and the people we serve.

II. Purpose and Scope of the Agreement

A. Purpose

The Administrator of the U.S. Environmental Protection Agency (EPA)

and senior State environmental officials agree to three purposes for

this effort: to improve environmental protection in the United States;

to improve EPA/State environmental management practices; and to provide

timely decision-making on good ideas. These purposes will be achieved

through State proposals for innovation, with the intent that many

successful innovations will lead to system-wide improvements in

environmental protection.

1. Improved Environmental Protection

The Administrator of the U.S. Environmental Protection Agency (EPA)

and senior State environmental officials agree that the States and EPA

need to encourage, seek out, and try innovative approaches to improve

our nation's environment. These innovative approaches can offer

mechanisms that are more cost-effective, less adversarial and

contentious, and have a better environmental impact. While we have made

significant progress in environmental protection, much remains to be

done and no backsliding can be permitted. Innovative approaches offer

us tools to improve current environmental protection programs and to

tackle the environmental problems of the future.

Innovation can support sustainable development and continuous

environmental improvement by offering new approaches that harmonize our

progress toward environmental, economic, and societal goals. Some

innovations may address only one of these goals. Innovation proposals

that address more than one of these goals are desirable. For example,

innovations which facilitate a transition to pollution prevention and

product stewardship as primary methods of achieving environmental goals

can also have significant economic or societal benefits. To support

sustainable development and continuous environmental improvement,

innovations should utilize pollution prevention methods rather than

pollution control whenever possible.

2. Improved EPA/State Environmental Management Practices

Through this agreement, EPA and the States will test and implement

innovative approaches that lead to improved environmental programs.

This agreement is consistent with the concepts embodied in the National

Environmental Performance Partnership System (NEPPS). In fact, NEPPS

was established, in part, to encourage innovative approaches by States,

consistent with agreed-upon environmental goals and indicators. The

agreement recognizes that states and local governments are natural

laboratories for testing new ideas and that EPA has an important role

in promoting innovation at all levels, while continuing to ensure that

the States provide fundamental public health and environmental

protection. This agreement identifies how we will work together to

identify and promote innovative ideas and better ways of doing

business. It is intended to help us communicate and evaluate such ideas

and to encourage joint decision-making on how such innovations can be

fostered, designed and implemented.

3. Timely Decision-Making on Good Ideas

Finding better ways to accomplish our environmental goals is part

of the everyday practice of good government. Current processes through

which many successful State innovations have been carried out should

continue. We recognize that the most challenging regulatory innovation

proposals have been difficult to address. This agreement establishes an

optional avenue for prompt consideration and evaluation of innovation

proposals.

EPA and States may conclude that some successful regulatory

innovation projects demonstrate that changes in EPA regulations,

policies, guidance, or interpretations are needed to improve the

nation's environmental protection system. Where such changes can be

made under existing law, EPA will initiate the process for making the

changes--following applicable procedures. EPA and States may also

initiate policy discussions on potential statutory changes that may be

needed to enable nation-wide adoption of innovative approaches.

B. Scope of the Agreement

As used in this agreement, ``regulatory innovation'' is a broad

concept. It

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encompasses the process of proposing, testing, evaluating, refining and

sharing innovative approaches to environmental regulation in order to

achieve national, regional, state, tribal, and local environmental

objectives. Regulatory innovations should be more efficient and/or

provide greater environmental protection than current approaches,

foster cooperation, and include opportunities for strong stakeholder

involvement.

Many types of innovations are possible, and potential innovations

will vary in scope, complexity, ease of implementation, environmental

benefits, and other characteristics. At this point in time, it is

difficult to design a single system or process that is appropriate for

all potential innovations. Innovations should be accomplished through

the normal course of business whenever possible. This agreement

provides a clear pathway for innovative proposals that need extra

attention or are too complex to be handled through normal channels.

Proposals that are less complex can be implemented more quickly,

leading to early success, while more difficult projects will likely

need more analysis and stakeholder participation. This agreement builds

on and complements other innovation activities, but is not intended to

replace them.

This agreement signals the commitment of EPA and State

environmental agencies to work together on innovations. It does not

create any legal obligations for EPA or the States, and does not alter

EPA's or States' statutory responsibilities or the nature of authorized

or delegated State programs. Any innovations under this agreement will

be implemented within our existing legal authorities using appropriate

procedures.

III. Principles for EPA/State Regulatory Innovation

EPA and the States agree to a set of basic overarching principles

that will guide our joint regulatory innovation activities. There are

seven overarching principles relating to regulatory innovation

activities--Experimentation, Environmental Performance, Smarter

Approaches, Stakeholder Involvement, Measuring and Verifying Results,

and Accountability/Enforcement, and State-EPA Partnership.

A. Experimentation

Innovation involves change, new ideas, experimentation, and some

risk of failure. Experiments that will help us achieve environmental

goals in better ways are worth pursuing when success is clearly

defined, costs are reasonable, and environmental and public health

protections are maintained.

1. The States and EPA should recognize the value of prudent risk-

taking through experiments designed to achieve improved results.

2. The States and EPA should seek ways to make good ideas work,

presuming that innovations to help meet environmental goals are worth

our investment.

3. The States and EPA should carefully monitor and manage

innovations to ensure that problems are immediately identified and

remedied. Experimentation should be based on sound judgment, reasoning

and common sense.

4. If a promising experiment encounters difficulties that likely

can be corrected and that do not jeopardize environmental protection,

project sponsors should be allowed to fix problems before the

experiment is abandoned in favor of the traditional approach.

5. Experimentation does not include relaxing health or

environmental standards or reducing protection of public health or the

environment.

6. Experiments should be designed to test new approaches and as

appropriate lessons learned should be used to improve the current

system of environmental protection.

B. Environmental Performance

Innovations must seek more efficient and/or effective ways to

achieve our environmental and programmatic goals, with the objective of

achieving a cleaner, healthier environment and promoting sustainable

ecosystems.

1. Protecting public health and the environment are the primary

goals of both EPA and State environmental agencies, and we agree that

innovations can help us find cleaner, cheaper, smarter ways of

improving our nation's environment. Innovations that facilitate a

transition to pollution prevention and product stewardship as primary

methods of achieving environmental goals are highly desirable and can

have significant economic or societal benefits to support sustainable

development.

2. Many opportunities exist to improve environmental protection

through innovations that have the clear potential to provide

environmental and ecosystem benefits. In addition, innovations may be

designed primarily to improve the cost effectiveness of achieving

environmental goals; these projects must ensure that there is no

adverse impact on: environmental protection, public access to

information, and public access to the decision-making process.

3. For projects that have a greater uncertainty of the

environmental outcome, or that involve experimental technologies or

approaches, innovations should be expected to have the clear potential

to provide increased environmental protection, promote ecosystem

sustainability, or both. EPA and the State agency, in their best

judgment and in consultation with stakeholders, will determine whether

such proposals have the clear potential to produce appropriate gains in

environmental protection, improved sustainability of the ecosystem, or

both.

4. Innovations may be designed to fit local and regional

conditions, as long as local solutions do not create environmental

problems for other localities, such as undesired downwind and

downstream effects, or undermine national standards.

5. No population group should be subjected to disproportionately

high and adverse human health or environmental impacts as a result of

the innovation.

C. Smarter Approaches

To reinvent environmental regulation, regulators should seek

creative ways to remedy environmental problems and improve

environmental protection, and be receptive to innovative, common sense

approaches.

1. Regulators should work with industry and communities to solve

environmental problems by identifying ways to remove barriers that

prevent prudent, common sense solutions.

2. Regulators should be professional, accountable and deserving of

the public's trust.

3. Regulators should seek to understand all perspectives, and help

stakeholders find common ground.

4. Regulators should act promptly to evaluate, and implement,

proposals that are straightforward, technically achievable, and have

clear advantages, while ensuring adequate opportunities for public

involvement and review.

D. Stakeholder Involvement

Effective stakeholder involvement produces better innovation

projects and catalyzes public support for new approaches. Stakeholders

must have an opportunity for meaningful involvement in the design and

evaluation of innovations. Stakeholders may include other State/local

government agencies, the regulated community, citizen organizations,

environmental groups, and individual members of the public. Stakeholder

involvement should be appropriate to the type and complexity of the

innovation proposal.

1. Innovations should include opportunities for early, open, and

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inclusive stakeholder involvement in project development, specifically

including those who may be affected by the decisions. Stakeholders

should be provided adequate time to review proposals and participate in

the process. When an innovation has the potential to result in

significant policy changes, additional efforts, that could include

incentives and assistance, should be made to provide additional

opportunities so that affected and interested stakeholders can be

meaningfully involved.

2. Consistent with the principle of providing meaningful

opportunity for stakeholder involvement, each State should have the

flexibility to use its own stakeholder participation process, as long

as applicable federal and State procedural requirements are met or

exceeded. EPA and States will identify national program issues and

ensure opportunities for active involvement from national and regional

stakeholder groups, especially where decisions on regional, state, or

local issues have broader impacts.

3. Project proposals and the process for their consideration should

be made transparent to stakeholders so that the benefits of the

proposed change can be fully evaluated. Information needed to

understand the proposed innovation and to verify compliance and

environmental performance should be publicly available in an

understandable form. EPA and States commit to provide regular analysis

of the types of innovations implemented and their environmental

impacts.

4. Because some stakeholder groups (e.g., small businesses, public

interest groups) often have a limited capacity to participate in

innovation projects, EPA and States will explore different approaches

to facilitating stakeholder involvement.

5. In circumstances where local governments share regulatory

responsibility, they should participate as partners with the State in

developing and implementing the innovation.

E. Measuring and Verifying Results

Innovations must be based on agreed-upon goals and objectives with

results that can be reliably measured in order to enable regulators and

stakeholders to monitor progress, analyze results and respond

appropriately.

1. The success of innovations should be judged by the results they

achieve. Goals and objectives should be: established in advance,

measurable, and based on the desired results.

2. Results should be verifiable by reliable measurements and both

process and results should be understandable to regulators and the

public.

3. Regulators should have access to high quality information

sufficient to verify the environmental performance of an innovation.

4. Regulators and the public should have a full understanding of

the differences between the innovation and traditional approaches,

including expectations for the project, accountability for performance,

and any potential risks.

F. Accountability/Enforcement

For innovations that can be implemented within the current

regulatory framework, current systems of accountability and mechanisms

of enforcement remain in place. For innovations that involve some

degree of regulatory flexibility, innovators must be accountable to the

public, both for alternative regulatory requirements that replace

existing regulations and for meeting commitments that go beyond

compliance with current requirements. Regulators will reserve full

authority to enforce alternative regulatory requirements to ensure that

public health and environmental protections are maintained, and must be

willing to explore new approaches to establish accountability for

beyond-compliance commitments.

1. For persons or activities not covered by the innovation project,

applicable statutory and regulatory requirements remain in effect and

fully enforceable.

2. If a promising innovation project encounters difficulties that

likely can be corrected and that do not jeopardize environmental

protection, regulatory agencies should evaluate the circumstances and

use judgment in allowing project sponsors to correct problems before a

project is abandoned in favor of the traditional approach.

3. Regulators must have authority to address such circumstances as

imminent and substantial endangerment, actual harm, or criminal

conduct.

4. Innovations may include both: (a) Enforceable ``alternative

regulatory requirements'' that provide protection equivalent to that

provided by otherwise applicable environmental standards or

requirements, and (b) other ``beyond-compliance commitments'' that seek

to exceed otherwise applicable standards or requirements. Alternative

regulatory requirements and beyond-compliance commitments should be

clearly distinguished in advance.

Alternative Regulatory Requirements:

--Alternative regulatory requirements should be enforceable with all

the remedies available under current law.

--Regulators should consider the circumstances and use their judgment

in choosing remedies when a facility fails to meet alternative

regulatory requirements.

--Potential responses for failure to meet such alternative regulatory

requirements should be identified in advance.

Beyond-Compliance Commitments:

--As part of an innovation, facilities may agree to beyond-compliance

commitments in exchange for regulatory flexibility or some other

incentive.

--Potential responses for failure to meet such beyond-compliance

commitments should be defined in advance.

--Responses for failure to meet beyond-compliance commitments should

fit the circumstances. They may include: a series of interim

accountability measures short of project termination, trying a

different approach, modifying the innovative approach, or reverting to

the traditional approach.

5. Innovations should not undermine the state's, federal

government's, or citizens' authority or capacity to enforce delegated

or authorized state programs.

G. State-EPA Partnership

The States and EPA will promote innovations at all levels to

increase the efficiency and effectiveness of environmental programs. We

must work together in the design, testing, evaluation and

implementation of innovative ideas and programs, utilizing each other's

strengths to full advantage.

1. As the primary front-line managers of many environmental

protection programs, the States and local governments are natural

laboratories for innovations. The States should manage their own

programs, adapt to local conditions, and test new approaches for

delivering more environmental protection for less.

2. The federal government should ensure good science, strong

national health and environmental standards, and should work in

partnership with the States by providing analysis, expertise, and

facilitating learning among the States. EPA should promote innovation

at all levels (national, regional, state, tribal, place-based,

community, and in the private sector). EPA retains its role to set

national standards and measures, implement programs not delegated to

states or tribes, address interstate issues, apply and interpret

national statutes and

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regulations, and ensure fair and effective enforcement, thus ensuring

that all states provide fundamental public health and environmental

protection and a level playing field.

3. EPA and state roles in innovations must be clearly designed to

utilize each party's unique strengths and avoid duplication. Decision

makers should be clearly identified.

4. Assigned roles and responsibilities should be honored and

respected, and joint problem-solving should be encouraged.

5. Communication must be open, honest, frank and frequent. The

States and EPA should work to understand each other's perspectives,

achieve consensus on major issues, make decisions in a timely manner,

and resolve conflicts quickly and efficiently.

IV. Process for Considering State Innovations Proposals

EPA and the States are engaged in many successful efforts to

reinvent environmental regulation. These efforts should continue

unimpeded. EPA and the States agree that, where procedures currently

exist, innovation proposals should be handled through normal EPA/State

program activities or other ongoing reinvention activities. Proposals

that do not fit into an existing pathway can be handled via the new

process established under this agreement.

The process of developing Performance Partnership Agreements (PPAs)

under National Environmental Performance Partnership System offers one

opportunity for States and EPA, working with stakeholders, to agree on

innovative approaches to pursue. However, participation in a PPA is not

the only avenue for States and EPA to work on innovative approaches.

Memorandum of Agreements and/or Work Plans can serve the same function

as a PPA. Inclusion of anticipated innovative approaches in the PPAs or

other agreements will allow the States and EPA to allocate staff

resources and establish priorities for innovative projects. For

example, individual States may choose to place higher priority on

innovation projects which promote clear cost or environmental benefits

for the public. It is envisioned that States will include in the PPAs

or other agreements a discussion of potential innovative activities,

indicating how the innovations link to environmental goals and

providing a picture of proposed changes.

A. Use Existing Pathways

This agreement is designed to supplement, rather than replace,

ongoing innovation activities underway in EPA and the States. Such

innovation activities should continue. State innovations that do not

require a change to Federal guidance, regulations or statutes can

proceed without EPA review. EPA's role will consist of support and

advice, if requested. EPA and States should continue to work together

on innovations that may involve using existing flexibilities in current

law and regulation, and on existing innovation programs such as Project

XL.

B. New Process Established Under This Agreement

The States and EPA agree to establish an optional process, which

States may use to get timely decisions on innovation proposals. This

process includes senior-level management attention and specific time

frames to ensure prompt decisions by EPA. The following process

establishes a management framework so that actions and next steps,

along with interested participants and decision-makers, can be clearly

identified and taken into account. EPA's Regional Administrators are

responsible for ensuring that the process moves forward; individual

States are expected to establish similar senior-level points of contact

to manage the State's role in the innovation process.

This process is intended to be flexible. For example, EPA Regional

Offices, EPA Headquarters Offices, and the States are encouraged to

maintain open lines of communication at both staff and management

levels beyond the formal process described below, and States are

encouraged to invite EPA into the early discussion stages of any

project. Early consultation between EPA and the States is important in

identifying obstacles early and in determining who needs to be involved

so that the project can move forward expeditiously.

EPA will also work with individual States as needed to establish

priorities in the review of proposals based on guidance developed in

the Performance Partnership Agreement or other EPA/State agreed

mechanism. EPA and the States recognize that the success of this

process will be affected by the quality and clarity of proposals and

the effectiveness of communication between EPA, the State, and

stakeholders. The States and EPA are committed to working together to

ensure that communications are frequent, open, honest, and directed to

finding means to allow innovations to succeed.

While one of the objectives of the innovation proposals is

efficiency, the very act of designing an experiment, testing the

hypothesis, and evaluating the results may be resource intensive for

all parties. The optimum management of resources by EPA and the State

will help ensure the success of the review process, the implementation

of the projects, and adherence to time lines.

1. Stage One--Developing Quality Proposals

States and EPA recognize that clear, well-developed proposals will

facilitate review and speed decision-making. States are encouraged to

consult with EPA as early as possible in the development of a proposal.

The States should be able to use this early consultation process to

develop a clear understanding of their proposals with EPA and key

stakeholders.

During the early consultation, the State and EPA will identify

issues that need attention, possible barriers to implementation,

uncertainties regarding risks, and value added to all parties. These

discussions will be open and candid and will provide the State with

information that will be important and useful for the development of

the proposal. While early consultation is encouraged, not all proposals

will require the same degree of discussion and/or consultation.

EPA and States will bring a positive, constructive approach to

consideration of proposals and seek ways to help good ideas to succeed.

States will prepare proposals that: a) are consistent with the

principles described in this agreement, and b) clearly present the

objective of the proposal, the expected benefits, a description of the

activities, and a determination as to whether the proposal: may require

a change to Federal guidance, policy, past practices or rule

interpretation, but not regulations or statutes; may require a change

to or waiver from Federal regulations, but not statutes; or, may

require a change to a Federal statute.

EPA will: (a) Provide clear statements of its position, along with

timely and authoritative answers to questions about what changes,

variances, or associated approvals a particular proposal may require;

and (b) work with the State to identify the most efficient path by

which a particular proposal could be implemented.

In addition, States will provide meaningful opportunities for

stakeholder involvement in the design and development of regulatory

innovation proposals. The degree of stakeholder involvement depends on

the nature of the proposal. Where a proposal would involve a change in

or variance from existing national

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guidance, regulations, or statutes, early consultation among EPA,

States, and national stakeholder groups can help identify critical

issues that need to be addressed. If EPA believes that broader

stakeholder involvement is warranted, in accordance with the

Stakeholder Involvement Principle, EPA will contact the State and

identify, in partnership with the State, an approach to obtain such

involvement as early in the process as possible.

The Senior State Environmental Official or their designee then

submits a written description of the regulatory innovation proposal to

the EPA Regional Administrator, who then initiates the review process

described below. The State will designate a high-level official as the

single point of contact for each project.

2. Stage Two--Review of Proposal and Decision

a. EPA Review. The EPA Regional Office will have primary

responsibility for review of the innovation proposal. This

responsibility includes proposal distribution within the Region and to

the affected EPA National Program Managers and the Office of

Reinvention; review and response to the State; and appropriate

stakeholder involvement. In cases where national policy or regulatory

issues are involved, the Regional Administrator must ensure complete

review by relevant national program offices.

EPA will consider several factors in the review of the innovative

proposals, including:

(1) Consistency with the principles in this agreement;

(2) Comments from stakeholders;

(3) Type of flexibility from federal guidance or regulation needed

to implement the proposal;

(4) Clear presentation and analysis of issues;

(5) Expected benefits of the innovation (including net improvements

in environmental, ecosystem, and efficiency results);

(6) Potential benefits of the innovation as compared to the

investment of time and resources required for implementation, and

impact on agencies' resources and workloads.

The review process is intended to be flexible. EPA and the State

should maintain open lines of communication at all levels--staff and

management--to ensure that questions and concerns are raised and

discussed. During the review process, EPA may seek input from other

States and stakeholders, including environmental groups and the

regulated community, to fully identify the strengths and weaknesses of

the proposal.

b. EPA decision. Upon completion of the consultation and review

period, the Regional Administrator will make a decision to accept or

reject a proposal. If a proposal involves a national policy or

regulatory issue, the decision will be made jointly with relevant

National Program Managers and the Office of Reinvention. This decision

will be communicated verbally and in a written form to the designated

Senior State Environmental Official. The written decision will include

the rationale for the determination.

EPA and the State will determine the category into which the

proposal falls. The type of proposal will have an impact on the time

frame for implementation. The categories are:

Category 1: Straight-forward, transparent proposal with clear

advantages, few obstacles, technically achievable, and minimum

environmental risk.

Category 2: Experimental proposal that has a greater uncertainty of

environmental outcome; requires more attention to design,

implementation, and evaluation; and may involve some risk of failure.

The unpredictability of the experiment means that it will be more

resource intensive and may require more time.

Category 3: Strategic proposal that involves broad-based, new

approaches (e.g., statutory changes) and requires policy discussion to

further develop concepts. Proposals may be assigned to an existing

policy forum for discussion or a new forum could be established.

If the proposal requires changes of interpretation or substance

regarding national statutes, regulations or policies before proceeding

with an innovation project, both EPA and the State will reach agreement

on all proposed changes. These projects will be accomplished through

mechanisms available under Federal law and regulation, which may

include variances, site-specific rules, legal interpretations, or other

means.

c. Appeals. In the event that a dispute arises during this process

or a State disagrees with a Region's decision, the State may appeal in

writing to the EPA Deputy Administrator. The State may also request a

review by a panel consisting of EPA Senior Managers and State

Commissioners. The panel will review the proposal, the issues, and

merits of the dispute, and submit recommendations to the EPA Deputy

Administrator for a final decision.

d. Time frames for decision. EPA and the States are committed to

working together to ensure timely responses to State proposals.

Initial response to proposal: EPA will respond to the State with

follow-up questions, clarifications, and initial reactions including an

initial identification of obstacles to approval within four weeks of

its receipt of a written innovation proposal from the State.

Decision to proceed with proposal: EPA will make a preliminary

decision to accept or reject a proposal within 3 months of the receipt

of a proposal from the State. If, during the review, EPA determines

that additional information is needed from the State, EPA will promptly

notify the State, and EPA and the State will agree on an appropriate

schedule for completing the review.

Decisions on proposals may be reached more quickly for proposals

that are straight-forward, with clear advantages, widely supported,

technically achievable, and implementable in the short-term. A

preliminary decision to accept a proposal will be accompanied by an

explanation of subsequent actions needed before a final decision can be

made or implementation can begin. For example, a proposal that involves

amending an EPA regulation would require a notice and comment process

in accordance with the Administrative Procedures Act.

V. Measuring and Evaluating Success

Before an approved proposal is implemented, we must define success

and how we will measure it. This can help eliminate misunderstandings

about whether or not the process and innovation as a whole is

progressing effectively, and if it is not, what steps need to be taken

to correct any problems.

Therefore, EPA and the States agree on the importance of evaluating

the success of regulatory innovation activities that flow through the

process outlined in Section IV. The challenge is to develop useful

measures without choking the very creativity we seek to stimulate. We

want to ensure that a variety of ideas are being proposed, that robust

stakeholder participation processes are utilized, that decisions are

made in a timely fashion, and that the most promising innovations are

being implemented successfully. To accomplish this, we must measure

both the success of the innovations and the success of our decision-

making process. Performance measures that emphasize environmental

results, including pollution prevention, are most desirable, although

we may have to rely

[[Page 24791]]

more on process measures in the near term.

A. Measuring the Innovation's Impact

The success of the innovation project's impact will depend on how

well it was designed and the results achieved. Successful innovation

project designs should be clearly described so successful projects can

be used to improve the entire system, and/or adapted to other site

specific situations. The quality of the projects implemented can be

measured by: (1) Environmental impact, (2) efficiency, and (3) other

relevant indicators. In addition to providing information about the

success of an individual innovation project, these measurements also

provide guidance on improving future innovation projects. States and

EPA should agree in advance who is responsible for collecting and

disseminating this information.

The proposed measures in Appendix A provide a starting point for

discussion in terms of a framework and some common criteria for

innovations. Common criteria allow the States and EPA to evaluate the

progress in innovations state-wide and nationally.

B. Measuring the Process

We must ensure that the decision making process is effective, or

the process will not be used. The success of the process depends on the

effectiveness of the communications between EPA and the States and the

timeliness of decisions. Measurements include: (1) The number and

quality of innovation projects proposed, (2) the number and quality of

innovations implemented, (3) the timeliness of the actions taken in the

process, (4) the number of proposals appealed, and (5) the speed with

which information about successful innovations are disseminated to

other States. The success of the process is enhanced by the development

of effective partnerships across all interested and affected

stakeholder groups to design innovations which will meet multiple

objectives and to build broad support for their implementation. EPA and

States will evaluate factors that are difficult to measure but are

critically important to successful outcomes, including the degree of

EPA-State cooperation and stakeholder participation. EPA should collect

this information and make it available at a central location so it can

be used by the States, EPA, and stakeholders. Within 60 days of signing

this agreement, EPA and the Environmental Council of the States (ECOS)

will designate a central location.

VI. Information Sharing

Accepted State innovation proposals and completed projects are most

valuable when widely available to State and local regulators, the

regulated community, environmental organizations and the public at

large. We agree on the need to share information, track commonalities

and analyze barriers to promising State innovations. Knowledge of both

successes and failures will help the States, EPA and stakeholders

develop better approaches for achieving our environmental goals.

Because sharing information and innovative ideas among the States is

key to the success of this agreement, the States, through ECOS, will

set up a regulatory innovation clearinghouse that serves to notify

potentially affected States of innovation proposals and highlights the

results of this agreement and other State/EPA innovations that EPA

Reinvention Ombudsmen or State Commissioners deem appropriate.

VII. Next Steps

EPA and the States agree on the following steps to ensure prompt

implementation of the agreement:

A. Joint Evaluation

By October 1999, States, EPA and other interested parties will

begin to evaluate the success of regulatory activities that have been

reviewed under the new process. The evaluation will consider both the

environmental and efficiency benefits derived from each innovation, and

the efficiency of the new review process. The results of the evaluation

will be shared with EPA, the States and stakeholders.

B. Modifications to the Agreement

If the evaluation indicates a need to modify or amend this

agreement, EPA and the States agree to discuss such modifications or

amendments and make needed changes by January 2000.

Attachments

A. Proposed Core Performance Measures

B. Examples of Regulatory Innovations

Attachment A--EPA/State Environmental Regulatory Innovations,

Proposed Core Performance Measures

Environmental Goal

A sustainable environment with healthy communities and

ecosystems

Environmental Objectives

--Air quality improvements

--Water quality improvements

--Land quality improvements

Program Objectives (Outcomes)

--More effective and efficient environmental regulatory systems

--reductions in releases to the environment

--reductions in resources expended to implement the regulatory process,

by regulators, regulated entities, other stakeholders: time, work

years, money

--increased stakeholder participation in the regulatory process

--Large majority of high priority, high quality innovation projects

are successfully implemented

--Successful results of innovation projects are: clearly described,

widely disseminated, adopted in other site specific situations, used

to improve entire systems

Program Activities (Outputs)

--Number of innovation projects proposed

--Number of innovation projects implemented

--Quality of projects implemented: environmental, efficiency, other

indicators

--Stakeholder participation

--Timeliness of actions taken in process

Attachment B--Examples of Regulatory Innovations

To encourage creative thinking and the development of good

regulatory innovation proposals, EPA and the States have developed

the attached examples of regulatory innovation projects. Four

examples of potential regulatory innovations are provided. Examples

1, 2 and 3 are suggestions of innovative ideas that States have

developed--they are intended to illustrate the kinds of proposals

that may be developed. These examples have not been reviewed or

accepted by EPA as projects for this process. Example 4 describes an

innovative proposal that was recently implemented in North Carolina.

Example 1: Mercury in Wastewater Effluent

Objective: Substitute sludge testing and limit requirements for

mercury in place of effluent limits and monitoring requirements in

NPDES permits for municipalities.

Description and expected benefits: Mercury cannot be detected

accurately in municipal wastewater effluent. Dilution of mercury in

effluent leads to non-detectable monitoring results. In addition,

mercury test methods at the low levels seen in municipal effluent

can easily pick up contamination of sampling and analysis and lead

to false positives. As a result, most municipalities can show

compliance with mercury effluent limits and need take no steps to

reduce mercury in their effluent.

This proposal would eliminate effluent limits from NPDES permits

for municipalities, and instead substitute sludge monitoring (where

mercury concentrates in the wastewater treatment process). If

mercury in sludge exceeds federal clean sludge levels,

municipalities would be required to develop mercury source reduction

programs. Since mercury can be more accurately detected in sludge,

this would lead to better targeting of

[[Page 24792]]

the municipalities that need to develop mercury source reduction

programs.

Federal obstacle halting or hindering progress: Requires changes

in either federal statute or variance/change in federal regulations.

Attorneys state that sludge requirements as proposed cannot be tied

to surface water standards.

Additional background information: This proposal was strongly

supported by municipalities, environmental groups, Wisconsin DNR

staff, and EPA staff. All saw that this proposal would lead to

greater environmental benefits than the current NPDES system.

State: Wisconsin Department of Natural Resources, Bureau of

Watershed Management.

Example 2: Continuous Emissions Monitoring for Air Pollutants

Objective: Create a flexible approach to compliance

demonstration for air emission limits that have been consistently

achieved. In exchange, install continuous emissions monitoring for

other toxic pollutants for which more data is needed. This approach

would reward facilities which have demonstrated superior

environmental performance with simplified compliance demonstration

requirements.

Description and expected benefits:

--Federal guidance on practical enforceability requires that

compliance demonstration schemes use available technology which

produces verification of compliance data as frequently as

practically possible.

--A facility is required to use continuous emission monitors (CEMs)

to show compliance with an air emission limit. Data has been

gathered for several years and it shows consistent emission levels

at or lower than 50% of the limit. In addition, other surrogate

process parameters are continuously monitored.

--The permittee wishes to show compliance by an alternative

compliance method which requires periodic testing to assure

continued compliance. The surrogate parameters will continue to be

monitored and will be used to ensure that the operating conditions

remain within the range under which compliance has been demonstrated

by periodic testing.

--In exchange, the facility agrees to install CEM for certain toxic

organics from certain processes. The nature and levels of these

toxics are not very well defined based on mass balance approaches.

The information generated by these CEMs will be useful for an air

toxics analysis being conducted in the area.

Federal obstacle halting or hindering progress: Requires change

or deviation from established EPA policies regarding federal

enforceability as a practical matter on emission limits. However,

the demonstrated level of confidence on compliance warrants a less

rigorous approach, particularly because it includes a periodic

verification process.

Additional background information: The permittees believe that

it is important to build a trust relationship with regulators to be

able to re-direct resources to areas where the need is greater to

realize further improvements or to generate new information on

environmental matters.

State: Minnesota Pollution Control Agency, Air Quality Division,

Permits Section.

Example 3: Tiered Permitting System for Hazardous Waste Facilities

Objective: Create a permitting system for hazardous waste (HW)

management facilities that are presently exempt from the existing

RCRA Part B permitting system but still pose a potential threat to

human health and the environment if improperly designed and

operated.

Description and expected benefits:

--Current RCRA regulations exempt recycling facilities from any

permitting requirements, but require a Part B permit if HW is stored

prior to recycling.

--Environmentally safe recycling is preferable to disposal and

should be encouraged.

--Recycling facilities can be as complicated as treatment and

disposal facilities and require some oversight to ensure that they

are protective of human health and the environment.

--Requiring the standard Part B permit for recycling facilities

creates a disincentive and may greatly limit the number of recycling

facilities.

--A less onerous tiered permit provides regulatory oversight and

does not pose the same disincentive as a Part B permit for recycling

facilities.

--The tiered permit incorporates performance standards and financial

assurance as appropriate and is custom tailored to the facility

without requiring all of the elaborate features of a Part B permit.

Federal obstacle halting or hindering progress: May require a

variance from federal statutes and regulations that prescribe

standards and require a Part B permit for storage of HW depending on

what type of storage activities are covered under the tiered permit.

Additional background information: State legislation required

fluorescent lamp recyclers to be permitted. Rules are in the

development stage with extensive regulated community involvement.

The tiered permitting system will be extended to all types of HW

facilities for which a Part B permit is not required or not

appropriate, including recyclers and some types of storage

facilities.

State: Minnesota Pollution Control Agency, Hazardous Waste

Division, Regulatory Compliance Section.

Example 4: River Basin-Based Planning and Permitting

Objective: To coordinate stream modeling and permitting on a

river-basin or sub-basin scale instead of in a piecemeal fashion.

Description and expected benefits:

River-basin based planning and permitting would:

--Enable better planning and resource allocation

--Increase consistency between permits

--Increase consideration of basin-wide pollutant inputs (point and

nonpoint) for better decision-making and planning

--Improve efficiency of modeling, data collection for modeling, and

permitting activities

--Provide opportunity for greater stakeholder involvement in the

planning process Federal statutes prohibit permits with a term

greater than five years

To synchronize NPDES permit renewal for an entire river basin,

the State had to issue five year permits followed by an additional

short-term permit. The burden on permitting and modeling staff was

further increased because EPA Region IV was also pressing NC to

address its permit backlog. The State lacked sufficient modeling

resources to address the existing backlog and also issue short term

permits in selected basins. The State proposed to reissue the short-

term permits with existing limits without modeling and to refocus

its permitting staff away from the permit backlog and toward the

basin-wide permitting approach. Region IV was hesitant to endorse

the basin-wide concept.

Contact with EPA Headquarters (Office of Water) convinced EPA to

hire a facilitator to help the State develop an implementation

strategy for the basin-wide planning and permitting approach. EPA

Headquarters also sponsored a workshop to obtain input from

surrounding States. This involvement allowed the State to develop a

convincing strategy, and subsequently, Region IV agreed to the

proposal. EPA also provided a 104(b)(3) grant to increase monitoring

and modeling in the Tar-Pamlico River Basin to help pilot the

approach.

Federal obstacle halting or hindering progress: Required change

in EPA past practice.

Additional background information: At first, permittees reacted

to the short-term permits due to the extra burden of completing

permit applications and paying application fees. However, the

concerns of permittees were quelled by pointing out the long-term

improvements in consistency among permits in the river basin and in

efficiency of issuing these permits. Environmental stakeholders were

supportive of the approach from the start due to a greater

opportunity for involvement in the planning process.

State: North Carolina.

Joint EPA/State Agreement to Pursue Regulatory Innovation, Response

to Comments

Purpose of the Agreement and Environmental Performance

Summary of Comments: A number of commenters were concerned that the

agreement did not emphasize the importance of innovation as means to

move toward environmental sustainability. They suggested focusing the

agreement on holistic pollution prevention and product stewardship

approaches, because these approaches can help address the root causes

of pollution and move toward a more

[[Page 24793]]

sustainable system. Also, these commenters felt that the agreement

emphasized efficiency over environmental gains, rather than advocating

innovations that can simultaneously achieve environmental, economic,

and social goals. These commenters felt that environmental gain should

be a key factor in prioritizing innovations. An opposing view was

expressed by some commenters, that the agreement should put more

emphasis on economic gains as incentives for innovation. A number of

commenters expressed support for ``efficiency only'' projects that

would achieve the same level of environmental quality. Conflicting

comments were received about whether better environmental performance

should be required in proportion to any regulatory flexibility granted.

Response: EPA and the states agree that the concept of innovations

leading to environmental sustainability should be emphasized (added

language to Purpose section and Environmental Performance sub-principle

on this concept). Innovations that simultaneously address

environmental, economic and social objectives are highly desirable.

However, the agreement recognizes that, in some cases, it will make

sense to pursue innovations that are primarily targeted at efficiency

improvement, as long as environmental protections are fully maintained.

The agreement does not include a specific ``proportionality'' test that

would require increased environmental performance in return for

regulatory flexibility. However, innovations which have a greater

uncertainty of the environmental outcome, or are more experimental in

nature, will be expected to have the potential for improved

environmental results. Also, as proposals are reviewed, the potential

benefits of a proposal will be weighed against the resources needed to

implement the proposal, and if resource limitations become an issue,

priority will be given to proposals that appear to have a greater

return on investment.

Specific Comments

Comment: The agreement speaks several times of innovations that

have the clear potential to provide environmental benefits. Other

principles are not similarly qualified in the agreement. The italicized

phrase should be replaced with a positive concept such as ``clearly.''

Response: The phrase ``have the clear potential'' is appropriate

for projects that have a greater uncertainty of the environmental

outcome, or that involve experimental technologies or approaches.

However, we agree that it is important that the intent of the project

is to achieve better environmental results, even if those results

cannot be guaranteed, and we expect that experimental projects will be

designed to achieve increased environmental protection.

Comment: A commenter said that the agreement will result in

numerous waivers of EPA requirements, based only on ``equivalency,''

and will eliminate incentives to achieve superior environmental

performance.

Response: EPA and the states are not entering into this agreement

simply in order to provide a pathway for obtaining waivers of

regulatory requirements. The purposes of this agreement are clearly

stated: to improve environmental protection, to improve EPA/State

environmental management practices, and to provide timely decision-

making on good ideas. We believe that this agreement will foster

cooperative exploration of innovative approaches that can potentially

lead to substantial improvements in both our management system and in

the level of human health and environmental protection. It is not our

intent to undermine incentives for achieving superior environmental

performance. For example, EPA's Project XL offers regulatory

flexibility in return for superior environmental performance,

stakeholder involvement, and several other criteria. If under this

agreement, EPA receives proposals that are more appropriate for Project

XL (e.g., proposals requesting significant regulatory flexibility for a

single facility) then EPA will recommend that those proposals will be

directed to the XL process.

Experimentation

Summary of Comments: A commenter said that the agreement should

more clearly acknowledge that ``experimental'' efforts may at some

future time be incorporated into the mainstream of environmental

protection. Other commenters said that the agreement speaks of

``maintaining'' or ``not jeopardizing'' environmental protections,

rather than enhancing them, and doesn't address the value of interim

incentives or enforcement responses.

Response: EPA and the states agree that a main purpose of

experimentation is to test approaches that may later be appropriate to

be applied more broadly. A sub-principle has been added to the

Experimentation principle which states ``Experiments should be designed

to test new approaches and as appropriate lessons learned should be

used to improve the current system of environmental protection.'' The

idea of using interim accountability measures has been added to the

Accountability/Enforcement principle.

Stakeholder Involvement

Summary of Comments: Many commenters addressed the issue of

stakeholder involvement in the development of innovation proposals. A

number of commenters agreed that ``stakeholder involvement should be

appropriate to the type and complexity of the innovation proposal.''

Some commenters raised concerns that stakeholder processes can become

too elaborate or can delay a project for too long, and that consensus

should not be required. Other commenters emphasized that the agreement

did not convey a true partnership approach, lacking elements such as:

firm requirements for inclusiveness, addressing the need for technical

assistance, and success measures that evaluate the effectiveness of the

stakeholder process. These commenters also felt that the linkage

between stakeholder involvement and the process for different

categories of projects should be addressed.

Response: EPA and the states believe that stakeholder involvement

is important to successful innovation projects, and we are adding a

clear statement to the Stakeholder Involvement principle that

stakeholder involvement is important because it produces better

innovations. We believe that the stakeholder principle provides

sufficient flexibility for EPA and States to design stakeholder

processes that are appropriate for different types of innovations and

as appropriate, allows states to use existing stakeholder participation

processes. There is a range of opportunities for stakeholder

involvement that may be appropriate, depending on the type and

complexity of the innovation. For a straight-forward innovation

designed to streamline an existing process, providing opportunity for

participation and comment may be sufficient. For proposals with

significant policy implications, the need for public involvement will

likely be greater, and it is the responsibility of government agencies

to take extra steps so that active involvement can occur. Some changes

were made to the stakeholder principle and sub-principles to clarify

this intent.

EPA and the states realize that it is often difficult for some

parties, such as small businesses and public interest groups, to

actively participate in stakeholder processes. EPA and the states will

try different approaches to

[[Page 24794]]

facilitating stakeholder involvement, such as: providing easily-

accessible information about new project proposals (e.g. via the

Internet), providing assistance in understanding proposals to help

focus on priority issues and projects, and pursuing other creative

mechanisms that foster participation. Issues such as technical

assistance for stakeholder participants will be addressed on a project-

by-project basis. Also, language was added to the section on

``Measuring and Evaluating Success'' to emphasize the need to evaluate

the effectiveness of the stakeholder process.

Specific Comments

Comment: A commenter expressed the need for affirmative language on

all levels of government working together and to more clearly recognize

and define the role of local governments in the regulatory system and

in innovation.

Response: EPA and the States agree that local governments are

essential partners in innovations that come under the jurisdiction of

local regulatory authorities. A sub-principle has been added to the

Stakeholder Involvement principle to recognize the importance of

working cooperatively with local governments.

Comment: Several commenters stated that the reference to involving

national stakeholder groups to examine national issues should be

broadened to recognize the important role of state groups, and the

interest of national groups in important state and local issues.

Criteria, and an accountability mechanism, are needed to help identify

cases where national (or state) stakeholder involvement is needed.

Response: EPA and the states agree that stakeholders should have

the opportunity to be involved in design and development of proposals,

and that both national and regional groups may be interested in

important regional, state, and local issues that are likely to have

broader impacts (added clarifying language to stakeholder sub-

principle). At this time, we do not think it appropriate to develop

specific criteria for national stakeholder involvement. We will make

every effort to make information available and to keep stakeholders

informed about proposals under this agreement, so that stakeholders

will have the opportunity to participate. As we gain experience with

the process, we will consider whether it is possible and appropriate to

develop criteria for national stakeholder involvement.

Comment: Several commenters pointed to the need for special efforts

to involve stakeholders such as small business and public interest

groups in innovations, due to their limited resources.

Response: EPA and the States agree that creative approaches to

foster such involvement should be encouraged. A new sub-principle was

added to Stakeholder Involvement to encourage these efforts.

Comment: A commenter expressed concern that the EPA review process

includes the active solicitation of comments after the stakeholder

process has been completed.

Response: EPA and the states agree that in cases where there has

been a robust stakeholder process, that no additional input would be

needed. However in some cases, such as a proposal that comes to EPA in

a preliminary stage of development, EPA may need to consult with

stakeholders to ensure that all points of view are considered, prior to

making a decision. In cases where a federal or state regulation will be

changed, public notice and comment may be part of the required legal

process that would occur following the preliminary decision.

Comment: A commenter asked for clarification about subprinciple D.2

(the requirement that stakeholder processes meet or exceed applicable

state and federal requirements) and whether this refers to procedural

or environmental requirements.

Response: The language has been added to indicate that this

statement refers to procedural requirements.

Smarter Approaches

Comment: A commenter pointed out the need to ensure that proposed

innovations do not undermine the original purpose of ``regulatory

barriers.''

Response: EPA and the states agree that the underlying regulatory

objectives of a ``regulatory barrier'' need to be carefully considered

in the development of innovations. The language in the ``Smarter

Approaches'' subprinciple indicates that the purpose of removing

``regulatory barriers'' is to solve environmental problems. In deciding

whether a proposed innovation is helping to solve an environmental

problem, regulators will need to ensure that the underlying

environmental purpose of the ``regulatory barrier'' will still be

achieved.

Accountability/Enforcement

Summary of Comments: Some commenters raised concerns that all

conditions that are integral to an innovation project should be

enforceable, and that accountability could be strengthened by including

a series of interim accountability measures as part of the project

design. Another commenter suggested that EPA and the states should not

pursue traditional enforcement mechanisms such as penalties if problems

are encountered during implementation of an innovation project.

Response: EPA and the States agree that accountability and

enforcement remedies should be used that are appropriate to the

circumstances of an innovation project, and the language of the

Accountability/Enforcement section has been clarified to reflect this

intent. For example, it may be appropriate for project participants to

agree on a series of interim accountability measures that will be

tracked as the project is implemented. In order to preserve enforcement

authority for use in serious circumstances, we cannot rule out the use

of penalties. The agreement indicates that ``alternative regulatory

requirements'' will be enforceable with all the remedies available

under current law. ``Beyond compliance commitments'' may also be part

of some innovation agreements, and accountability measures for these

commitments should be determined when the innovation is designed. In

some cases, if innovations include a set of activities, it may

difficult to distinguish between ``alternative regulatory

requirements'' and ``beyond compliance commitments.'' In these cases,

EPA and the state will carefully evaluate all proposed activities and

determine an appropriate requirement category based on the projected

net result of the proposed activities.

Specific Comments

Comment: A commenter said that clarification was needed to convey

that current requirements are enforceable only to the extent that they

are not modified by an approved innovation project.

Response: EPA and the States agree that the intent of the agreement

is that all applicable statutory and regulatory requirements, other

than those included in the innovation project, remain in effect for all

entities and are fully enforceable.

Roles of Project Proponents and Stakeholders

Summary of Comments: Several commenters raised questions about

whether sponsors other than a state could initiate projects. A

commenter suggest that more incentives for industry to participate

should be provided. Several commenters also raised the issue of

appeals, and whether parties other than the state could appeal an EPA

decision on a proposal.

[[Page 24795]]

Response: We are committed to working with partners in the

regulated community, and other stakeholders, to develop successful

innovation projects and have a variety of mechanisms in place to do so.

The focus of this agreement is to facilitate state proposals for

innovative environmental management approaches. States are co-

regulators with EPA and are responsible for implementation of delegated

or authorized environmental programs. We encourage non-state sponsors

to partner with states in moving innovations forward under the

agreement. Other pathways (such as Project XL) are available for other

sponsors to work with directly with EPA on innovation projects.

Similarly, because this agreement is designed for state proposals,

states are the appropriate parties to appeal decisions. Input of

interested stakeholders will be considered throughout the review and

appeals processes.

Relationship of Categories of Projects and Application of Principles

Summary of Comments: A number of commenters stated that the

agreement should include objective criteria for deciding how projects

should be classified and where certain principles may vary based on the

category.

Response: While the principles articulated in this agreement will

set a standard for all innovation proposals, we expect some principles

or sub-principles to be more relevant to certain types of projects. For

example, while stakeholder input will be important for all innovations,

we anticipate increasing levels of stakeholder involvement in

Categories 2 and 3, as compared to Category 1. In terms of

environmental performance, cost-effectiveness projects would generally

be expected to fit in Category 1. More experimental proposals that fall

in category 2 would generally be expected to have the potential to

provide increased environmental protection. Other principles may also

vary somewhat in their applicability across categories.

EPA Review and Decision on Proposals

Review Criteria

Comments: A commenter stated that the agreement should further

define the decisional criteria that EPA will use to approve or

disapprove a proposal. Several commenters said that the criteria

addressing resources should also include impact on stakeholders'

resources and workloads.

Response: The agreements lists several criteria EPA will use in

reviewing proposals. We believe these criteria can only be refined

through some direct experience in evaluating project proposals. The

first criterion is ``consistency with the principles in the

agreement.'' Evaluation of proposals against this criterion will

include an evaluation of whether stakeholder involvement in design and

development of the innovation is consistent with the Stakeholder

Involvement principle.

Statutory Change

Comments: A commenter said that where statutory impediments are

identified, EPA should be willing to entertain statutory revisions and,

together with states, advocate these revisions to Congress. Another

commenter said that EPA should not indicate that it will reach

agreement with all the states before pursuing any changes in

interpretation or statutes.

Response: EPA and the states believe that exploration of innovative

approaches may, in some cases, point to the need for regulatory or

statutory change. Where such changes will promote effective, common

sense solutions to environmental problems, EPA is committed to pursuing

change through appropriate mechanisms. In all cases, we believe there

must be an open process and full public discussion and debate.

Handling Numerous Proposals and Setting Priorities

Comments: A commenter pointed out that the management of numerous

state innovation proposals may become an overwhelming task for EPA, the

states, and interested stakeholders, and therefore, EPA and ECOS should

focus first on those innovation proposals having the greatest potential

for success.

Response: EPA is concerned about the difficulty of managing

appropriate participation and review for numerous proposals while

upholding high standards of review and meeting ambitious time frames

for decisions. EPA will strive to address all State innovative

proposals promptly and carefully. It is difficult to anticipate how

many projects may be proposed. If a large number of projects are

submitted, EPA will likely need to use a screening and priority-setting

process to ensure that available resources are used effectively.

Time Frames for Decision

Comments: One commenter suggested that the agreement include a

forcing function to ensure that deadlines are met, such as a default

mechanism that the project is approved if time expires. Another

commenter said that the agreement should clarify that the 3-month

decision is a definitive decision by EPA to accept or reject the

proposal.

Response: EPA is committed to responding as promptly as possible to

innovation proposals, as reflected in the ambitious 3-month target for

decision-making. However, the 3-month deadline will not be met in all

cases--a great deal will depend on the quality and completeness of the

proposal, and, in a number of cases, more information will likely be

needed to augment the initial proposal submission. EPA and the state

will jointly agree on extending the deadline as appropriate to the

circumstances. Additionally, the 3-month decision is a preliminary

decision to go forward with a project. EPA must follow all legal

requirements that are applicable in each situation in order to reach a

final decision and begin implementation. Thus, ``default approval,'' in

cases where EPA does not meet the target, is not possible. For example,

a proposal that involves change to a regulation must be carried out

through notice-and-comment rulemaking, and under the law, EPA cannot

make a final decision until public comment has been considered.

Other Comments

Stakeholder Evaluation of Proposals and Results

Comments: A commenter recommended establishing a national advisory

committee, perhaps including stakeholder representatives from the

local, state, and national level, that would evaluate proposals,

analyze ongoing progress with innovations, and evaluate the

transferability of successful results.

Response: The Stakeholder Involvement principle provides for the

participation of stakeholders in the evaluation of project proposals.

EPA and the states agree that stakeholders also need to be involved in

evaluating the success of innovations implemented under this agreement.

The Next Steps section has been modified to say that EPA, states, and

other interested parties will work jointly on evaluating both the

results of innovations and the process for review and implementation of

the projects.

Confidential Business Information

Comments: A commenter said that information sharing is an important

part of the process, however, the agreement lacks guidance regarding

protection of confidential business information.

Response: EPA and the states feel that there are adequate

provisions in place, outside of this agreement, in federal and state

law and regulation, to adequately

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protect confidential business information. As we move forward with

implementing the agreement, we will develop procedures to ensure that

information shared in the development of proposals but designated as

confidential business information remains confidential.

Measuring Success/Core Performance Measures

Comments: A commenter said that core performance measures should

emphasize environmental results (e.g., fewer diseases from pollution)

over bean counting (i.e., number of projects). Another commenter said

that the three environmental objectives (air, water, land quality

improvements) are not inclusive of all ecosystem improvements, and that

the measures should take a broader holistic approach towards improving

environmental quality.

Response: EPA and the states agree that success measures should

look more broadly at improving human health and environmental quality.

The set of measures in Attachment A of the agreement is provided as a

starting point for discussion. As implementation of the agreement gets

underway, EPA and the states, working with stakeholders, will further

develop the set of performance measures that will be used for

evaluating success.

Specific Comment

Comment: A commenter said that the provisions under the Measuring/

Verifying Results principle do not require measurement and monitoring.

Response: EPA and the states believe that the intent of this

language is clear--that innovations must have results that are

measurable and verifiable.

Legal Status of the Agreement

Comment: A commenter stated that it is inappropriate for EPA to

enter into an informal agreement with a non-profit organization (ECOS)

that would subvert EPA's legal obligations.

Response: A paragraph has been added to the agreement to clarify

its legal status. The paragraph says, ``This agreement signals the

commitment of EPA and state environmental agencies to work together on

innovations. It does not create any legal obligations for EPA or the

states, and does not alter EPA's or states' statutory responsibilities

or the nature of authorized or delegated state programs. Any

innovations under this agreement will be implemented within our

existing legal authorities using appropriate procedures.''

Dated: April 29, 1998.

J. Charles Fox,

Associate Administrator, Office of Reinvention.

[FR Doc. 98-11799 Filed 5-4-98; 8:45 am]

BILLING CODE 6560-50-P